In the California real estate and lending community, and especially for  non real estate attorneys (normal people!), there is some misunderstanding and hidden mystery about what a notice of  lis pendens is, what is its function, and what is its place in the law and the world of California real estate. This article will unravel that mystery, and will focus on California law and some general American legal principles that explain the substance and procedure of the notice of lis pendens.

The simple definition of a Lis Pendens is that it is a notice of a pending lawsuit that is recorded in the county where real estate is located.    The subject of the lawsuit is usually  a “real property claim,” – a rather ambiguous phrase that means a claim about  title, ownership, and the right to possession, or the scope of an easement of the subject real property.   Every lawsuit that involves the situs of real estate is not appropriate for a lis pendens recording and filing.  For example, if a slip and fall accident occurred on real estate, a lis pendens would not have to be recorded on the chain of title because the claim does not involve title, ownership, right to possession, or the scope of an easement of the subject property.

In addition to the “real property claim” requirement, for a lis pendens notice to “stick” to the property’s title file, the claimant must also be prepared to establish the “probable validity of the claim by a preponderance of the evidence.”    The term “probable validity of a claim” is set forth in the statutes, and defined that it is more likely than not that the claimant will obtain a judgment against the defendant on the claim.   See Cal. Code of Civil Procedure section 405.30, and see companion sections 405.31 and 405.32.

The term “Lis Pendens” is a Latin phrase that literally means “suit pending.”    Sometimes a lis pendens is synonymously called a “Notice of Pending Action.”

In the United States, a lis pendens is a written notice that provides notice to the world that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is filed in the county recorder’s office where the real property is located.   Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property’s title is in question or in dispute. The pending claim and recorded notice may make the property less attractive to a buyer or a real estate secured lender.  The lis pendens provides an important notice function. Once the notice is recorded, anyone who nevertheless purchases the land or property or who records a deed of trust secured by the real property described in the notice takes possession of it or an interest in real property that is subject to the ultimate decision of the lawsuit.

The lis pendens notice document contains the address and legal description of the property, makes reference to the litigation parties and court case number, and lets non parties know that the litigation is pending about the title to the subject property. Non-parties may want to intervene if they have a stake in the outcome of the case.

The lis penden’s notice refers to any pending lawsuit or to a specific situation with a public notice of litigation that has been recorded in the same county where the title of real property has been recorded. This notice secures a plaintiff’s claim on the property so that a transfer, sale, mortgage, or encumbrance of the property will not diminish plaintiff’s rights to the property, should the plaintiff prevail in its case.   In some jurisdictions, when the notice is properly recorded, lis pendens is considered constructive notice to other litigants, purchasers, transferers, or other unrecorded or subordinate lienholders.

The clerk at the county recorder’s office will record a lis pendens upon request of anyone who claims to be entitled to do so (e.g. because the party has filed a lawsuit and wants to provide notice as per the code of civil procedure).  If someone else with an interest in the property (e.g. the owner) believes the lis pendens is not proper, the party can then file motion in court to try to have it expunged.

The clerk at the county recorder’s office cannot decide if the recording of the lis pendens is technically lawful and legally proper. The clerk will check for mistakes as to the form of the document.  The attorney for the plaintiff or claimant should make this initial determination as to the form and appropriateness of the lis pendens. If the lis pendens is in the proper format, the county recorder will record the lis pendens. The judge that is presiding over the case can decide if the lis pendens recording is proper and lawful.

A lis pendens notice provides constructive notice of the pending legal action, and it serves to place a cloud on the title of the property in question until the lawsuit is adjudicated, and the notice released or the lis pendens is expunged.  A recorded lis pendens may show up on a preliminary title report or title recording analysis profile because there is a recording number associated with it.  The lis pendens is the “monkey wrench,” that is found in the bowl of oatmeal!   Prudent buyers that notice the recording of the lis pendens will be unwilling to purchase land subject to a lis pendens or will only purchase the land at a steep discount. Prudent lenders will not lend money secured by the subject property.  Title insurance companies may not insure the title to such land in the future until the lawsuit is finalized: title is taken subject to the outcome of the lawsuit. Because so much real property is purchased with borrowed money, this usually keeps the owner from selling the property.    It also may prevent the owner from borrowing money secured by the property.

It is important to note that the presence of a lis pendens does not prevent or necessarily invalidate a transfer of an interest in the subject property,although it makes such a transfer subject to the result and outcome of the litigation. Thus, the owner is not prevented from selling the land for (non-borrowed) cash, pledging it as security for a speculative loan, or giving it away- however, all are subject to and will be affected by the outcome of the lawsuit that is referenced in the notice.

However, once the lis pendens is recorded, the recipient (a “purchaser” or “grantee pendente lite“) would be deemed to have notice of the litigation and might lose their title position to the property if the plaintiff’s suit prevails.

One should be cautious in recording, serving, and filing a notice of lis pendens.   In some cases recording a lis pendens is mandatory – for example for a quiet title action or an eminent domain action.  For other situations, it may not be.  A lis pendens should only be used in the proper case and factual circumstances where a real property claim is involved, and the claimant’s case has some probable validity. For example, you should not record a lis pendens just to force a party to settle. See, the court’s reasoning, for example, in Hilberg v. Superior Court (1989, 2nd Dist.), 215 Cal. App. 3d 539, 263 Cal. Rptr. 675.

The California lis pendens statutes are structured to punish the wrongful, malicious lis pendens filer by shifting attorneys, costs, and damages.  The recordation of a lis pendens directly effects marketability of title and the ability to obtain real estate financing.  There is exposure to incur significant attorneys’ fees, costs, and damages for recording and filing an improper notice.   A relatively straightforward lawsuit can become a costly ancillary dispute when a lis pendens is not recorded in good faith and is properly challenged.

Sometimes a party to litigation seeks to record a lis pendens to seek financial or legal leverage or to force a settlement in the lawsuit.  An escrow may be on hold until the legal dispute is resolved.  The recordation of the lis pendens may be unlawful if the lis pendens is filed in a lawsuit that does not involve a “real property claim,” and or the claim lacks merit.   Sometimes the facts may be merky, or the claimant may not be able to prove the probable validity of the claim.   The party that is the “subject” of the lis pendens could incur losses because the party’s title is not marketable with the lis pendens notice.   The party may not be able to sell or refinance the property.   Under certain circumstances, the opposing party may file  Motion to Expunge or a Motion for the Claimant to Post a Bond (also known as an undertaking).

A Motion to Expunge a Lis Pendens can be a contentious and expensive litigation.  California Code of Civil Procedure Sections 405.30-405.33 govern  the California rules for a Motion to Expunge a Lis Pendens. The basic rules and procedures are fairly self-explanatory.  Your attorney should also review the case law for precedents that are on point.

Therefore, the lis pendens statutes contain cost shifting provisions. The court must direct that the party prevailing on any motion for expungement or other relief under Cal. Code of Civil Procedure Section 405.30-405.39  be awarded reasonable attorney’s fees and costs of making or opposing the motion, unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorneys fees and costs unjust.   See Cal. Code of Civil Procedure Section 405.38.   The court has some discretion, whether or not to award attorney’s fees and costs, and may do so swiftly if a party did not act with “substantial justification.”

Concluding Remarks

If you have fallen asleep at the beach or dozed off in the hot tub reading this article- don’t despair.  The subject of “lis pendens” practice is not that exciting.  But if you do get through this article intact, you will have unraveled the mystery of the lis pendens and be able to discuss it at cocktail parties and banquets with the best of real estate professionals.

In the realm of real estate litigation, the “lis pendens” is really the “side show,” of the main event which are the claims in the main case.  The bottom line is that recording of a lis pendens notice does provide a very important notice function to the world where a real estate dispute could affect non parties to the legal action, bona fide purchasers, and real estate lenders.

 

Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law, and bankruptcy matters.  He is a 22 year veteran Los Angeles real estate and business attorney and trial lawyer.   Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options and created www.laquiettitleattorney.com, a leading educational resource on quiet title real estate litigation.   For more information, call (818) 383-5759, or email natebernstein44@gmail.com